Goodbye, tax reform. Hello, tax relief.
A year ago, scrapping the income tax system and replacing it with
a flat tax, a national sales tax or just about any other tax was a
leading topic in Washington. This year, the focus is on handing out
The dividing line between the White House and congressional
Republicans is whether to tie tax breaks to specific conduct, such
earning B's in college, or to make across-the-board rate cuts and
taxpayers decide how to use the money.
The change can be seen in the statement that Rep. Bill Archer, R-
Texas, who is chairman of the House Ways and Means Committee, issued
right after President Clinton's re-election. It said nothing about
Archer, in an interview, said he still wanted to "tear the income
tax out by its roots." But for the time being, he added, he will
focus on more practical aspects.
"Tax reform was in style last year," observed Donald C. Alexander,
an internal revenue commissioner in the 1970s and now a tax lawyer
Aiken, Gump, Strauss, Hauer & Feld. "But what's in style for 1997
is, regrettably, ideas that will louse up the tax code even more
it is and make things more complicated."
Max B. Sawicky, an economist at the labor-backed Economic Policy
Institute, said that in terms of tax law changes in 1997, "We're
to small potatoes."
Here are some of the tax favors being proposed for the coming
* Capital gains -- Congressional Republicans want a broad cut in
capital gains taxes, under which the current 28 percent maximum rate
would be reduced to perhaps 20 percent and as little as 7.5 percent
for people in the lowest tax bracket.
Some kind of capital gains tax cut has good prospects for a number
of reasons, not the least of which is that it might help cool down
the stock market, where many people are holding on to stocks they
regard as overvalued just to avoid paying capital gains taxes that
would be owed if they sold.
President Clinton, who during the campaign, said, "I'm not
philosophically opposed to all capital gains cuts," said last month
that he would consider the issue "only in the context of balanced-
budget negotiations." He said he would judge any proposed capital
gains tax change by a simple standard: "Does it give you jobs and
Reducing capital gains rates temporarily, say for three years,
should bring more money into government coffers in the first two
years, as people cash in appreciated investments, especially stocks
that they had not sold to avoid a big tax bill.
If investors believe, however, that any temporary reduction in
capital gains rates might become permanent, then the effect of a tax
"sale" on government revenues -- encouraging people to cash in and
pay the taxes before rates go back up -- could be much less